Climate Policy Initiative Report Launch 26 3 19

Nicole Loser attended the launch of the Climate Policy Initiative report on Understanding the Impact of a Low Carbon Transition on SA. Here are my notes from the event, in case of interest. There were some interesting comments and questions from the DFIs (DBSA and IDC) in particular. Also attaching the report for your info.


*Patrick Dlamini (DBSA, CEO) – Keynote Address*
· On one hand, climate change threatens water supply and agriculture etc
· Been engaging with World Bank on how SA is preparing itself for low carbon future – how to secure a just transition for society
· Undeniable fact that world is migrating to low carbon future – critical thing is, are we doing enough? Are DFIs leading way?
· How do we make sure that social impact is minimised
· How do we engage with labour?
· Draws correlation between cyclone and climate change
· Fact of matter is the transition has already started
· R2 trillion of transition risk is mind boggling
· As a nation we need to start now – diving deeper and investigating exactly and precisely what this means for SA – how long can consumers take this and how will government be able to push this?
· Biggest off-takers of SA coal are India and China – but now they have own commitments
· How are we engaging on these difficult topics and working together for a just transition – owe it to our children and children’s children
*Laurence Breton-Moyet (Event sponsor, Agence Francaise de Development) – Remarks from Sponsor*
· Hope will be inspired to support low carbon transition
*David Nelson (CPI) – CPI report presentation *
· CPI is partner to World Bank advisory finance group – DBSA is a partner
· This is a material risk – risk to coal exports accounts for 2 thirds
· Most of risk ends up back with national gov due to risk flows
· Must manage risk across system and diversify risk
· Starting point is understanding and quantifying risk
· India building more mines in India to support Indian coal plants and sustain mining jobs – means importing less from SA
· Adaptation – billions. If don’t get to 2 degrees, costs will escalate rapidly to adapt to climate change
· Looks at contractual and regulatory relationships to see how risk is spread
· Risk will shift to national gov as stakeholders respond to new realities – coal miners may transfer cost increases for e.g.
· International miners already trying to reduce exposure to thermal coal – transferring international risk to SA market – and this risk gets borne largely by national government
· Need to avoid, diversify and allocate risk
· Identified investments SA is considering that might look attractive but that probably won’t look financially attractive in 2 degree scenario – coal IPPs are listed, as well as EMSEZ plant and new coal mines – could avoid these hiccups
· Some municipalities might have more capacity to carry risk – should we bring it to companies?
· It may be beyond what SA will need to do for 2 degrees, but may be less expensive
· Give risk to financial institutions and corporates
· Need to continue to monitor and develop risk and mitigation tools
· Deon Fourie (IPP office): does report look at how transition can occur justly? Across industry and to absorb jobs at risk?
· Mandy Rambaros (Eskom): we all understand this is NB, but timing is what’s concerning – if we’re going to transition from coal, what do we replace it with? Timing is something we need to talk about, need to do sensitivity analyses.
· David Nelson: if we go beyond 2035, we can’t meet 2 degrees
*Moderated Panel: Jesse Burton (Moderator); Megan Davies (Centre for Complex Systems in Transitions); Matt Huxham (CPI); Pierre Venter (Banking Association SA); Sherman Indhul (Transnet); Bethel Kgobane (IDC)*
· Sherman (Transnet): Transnet thinking about how TCFD recommendations could become a core focus – good starting point, to interpret economic landscape. Transition is in play already – we now have to get on with the how – this paper is a catalyst for the question of how
· Bethel (IDC): wish to have unions members involved
· Pierre (Banking Association): priv commercial banks position is more simplistic – may well include withdrawal from sector – have already seen many members withdraw – but how do we do this responsibly? Too rapid a transition could destabilise economy. This is far broader than just coal sector – need to transition across broader sectors, Needs to be partnership between all stakeholders – DEA LEDS for e.g. – broader and cuts across multiples departments, someone needs to coordinate all of this; treasury set to release a development finance strategy hope it will show how we transition at the right pace
· Megan (pHD researcher at Centre for Complex Systems, SUN) – research explored issues related to developmental and governance issues – focus in sustainability science and research- do work across energy, food, water etc – how can we work to building solutions quickly? This report is a significant piece of research that makes a strong claim – costs of inaction and business as usual are far greater. SA vulnerable to external dynamics – need to strengthen our adaptive capacity – importance of disclosure is really important to quantify risk

· Question for Matt H: How can SA best position itself for transition?
o Most people say 2 degrees not going to happen so can ignore it. But what happens to SA coal sector in a 3 degree world is pretty much the same – corporates must really engage with this work and understand the risks
o A 3 degree word for SA is even riskier – still have fall in coal exports
o Link between export and local coal market is quite apparent and NB
o To what extent are coal IPPs taking into account coal supplier’s position in transition? Coal supply may not be there for full duration of intended plant life

· Bethel: if we remove coal completely, what will happen with jobs? Aware that gov has made commitments but also mandated to save jobs – opportunity to explore financing RE and energy efficiency
o Let’s move away from carbon risk financing
o JB: know there are more jobs in RE
o Bethel: SA has committed to a no of international agreements, we need to find a way for financing carbon intensive assets with mitigation technology
o IDC has CC commitments
o Going to dwell on opportunities presented by transition
o Megan: does IDC consider resources required for low carbon economy – is this seen as an opportunity for IDC?
o Can convert CO2 – those are industries we’re focusing on
o Matt H: no one suggesting coal phase out happen overnight, but when IDC is investigating a coal investment, IDC is increasing transition risk – does IDC take that into account? Bethel: IDC has thresholds, do take that into consideration

· Question for Sherman (Transnet): future of SA’s SOEs?
o Transnet is looking at decarbonising

· Question for Megan: can decarbonisation and development go together?
o Shouldn’t be seen as opposing binaries – no alternative to thinking urgently about how we decarbonise
o REIPP is good example of catalyst
o To what extent does REIPP create conditions for just transition?
o Just transition being thrown around a lot, need to interrogate what we mean
o 4 useful features of REIPP – (1) way in which REIPP aligns energy policy with CC commitments; (2) novel econ development requirements; (3) decentralised mixed with highly centralised regime; (4) emergence of novel and experimental governance arrangements
o Megan: private sector can no longer view its role as making returns for shareholders. Municipalities need to be empowered as key players in transition – this requires us to invest resources to position municipalities as providers of RE will have to absorb largest proportion of transition risk – this calls into question municipal finding models and state’s development mandate

· Question for Pierre: how can the money get us there?
o Position broader than just investors
o 3 degree warming actually not okay – parts of SA will be uninhabitable
o Need conduit of public and private stakeholders

· Megan: Not about waiting in wings while government comes up with grand transition plan, it’s about getting into it now in our contexts and demonstrate viable alternatives
· Sherman: there is no grand architect that is going to come up with a solution, it’s about everyone doing what they can where they are
· Bethel: decisions made by financial institutions will have impacts on result – need to work as a block
· Pierre: banks have a transformation strategy – adoption of sustainable development goals – over next year or so, will translate to deliverables, one of those deliverables is energy
· Matt: great to hear how banks can collaborate – should there be differentiated roles for private and DFIs?
o Pierre: need commercially viable and sustainable deals for shareholders
o Bethel: fund RE projects, our job to create jobs
o Megan: What is role of DFIs and private sector? DFIs signal new directions; and priv sector enables RE investment across world – DFIs must be willing to absorb risks and crowd in interest and investment – DFIs must be creative and pioneer socially owned RE in SA

· Nicole L ques: All seem to acknowledge that transition is happening, this is a material risk for SA and DFIs and banks and all have a crucial role to play, let’s take the coal IPPs as a good concrete example of something that can be done now, DBSA, IDC and some commercial banks are recorded as financiers for the coal IPPs. This report and ERC confirms risks of going ahead with these; that we don’t need them R20 billion, and cost 80% more that RE alternatives, let alone the fact that they will be 2 of the most GHG emission intensive plants in the world, with huge negative health and water impacts. How do the DFIs justify funding these plants in light of need for urgent transition and the high costs and financial economic risks? Surely this is a case where the DFIs should be leveraging power and responsibility for public funds.
o Bethel: Hard as DFIs to just stop finance coal IPPs; will get technologies to reduce emissions
o Patrick Dlamini: have your letter on my desk; economics of projects speak for themselves; T & K – shocked that sponsors proposing atrociously emitting technology – how on earth could this happen? We can’t allow this and as a water scarce country need to be careful – at this point in time nothing approved; looking at right technologies; want to demonstrate need and make sure transition is made a reality. How does Eskom raise more debt to finance new generation – something we want to make work. Think economics speak louder than our actions here.

· Matt H: for this to really land, there needs to be action from gov and others – otherwise just another interesting study

· Bethel: SA is commodity-based country – how do we balance this? Coal-based economy

· Megan: not wise to try and protect coal jobs – hold ransom idea to transform economy where have huge unemployment already; can have heaps of reports – there is so much evidence; communicating insights is necessary but efforts need to be balanced with practical implementation – implore DBSA and AfDB to invest in small-scale RE projects partic with munics

· Matt H: Eskom is an example of situation where risk has built up and now in a situation where it’s expensive to fix – this is a good way to visualise transition risk impacts

· Sherman: transition discussions always come back to “we need someone to lead”, but everyone needs to lead; not all going to sing off same hymn sheet, going to be messy, will be vested interests in diff spaces, but it must happen – do whatever we can where we are to lead – DBSA would be a good point to lead

Nicole Loser
Centre for Environmental Rights NPC

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